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Should You Sell Manitowoc Today?

We're seeking danger signs among Fools' most beloved stocks.

The decision to sell a stock you've researched and followed for months or years is never easy. If you fall in love with your stock holdings, you risk becoming vulnerable to confirmation bias -- listening only to information that supports your theories, and rejecting any contradictions.

In 2004, longtime Fool Bill Mann called confirmation bias one of the most dangerous components of investing. This warning has helped my own personal investing throughout the Great Recession. Now, I want to help you identify potential sell signs on popular stocks within our 4-million-strong Fool.com community.

Today I'm laser-focused on Manitowoc, ready to evaluate its price, margins, and liquidity. Let's get started!

Don't sell on priceOver the past 12 months, Manitowoc has risen 38.7% versus an S&P 500 return of 11.3%. Investors in Manitowoc have every reason to be proud of their returns, but is it time to take some off the top? Not necessarily. Short-term outperformance alone is not a sell sign. The market may be just beginning to realize the true, intrinsic value of Manitowoc. For historical context, let's compare Manitowoc's recent price to its 52-week and five-year highs. I've also included a few other businesses in the same or related industries:

Company

Recent Price

52-Week High

5-Year High

Manitowoc

$12.11

$16.43

$51.50

Bucyrus International(Nasdaq: BUCY)

$69.35

$74.16

$144.30

Middleby(Nasdaq: MIDD)

$63.39

$65.21

$78.90

Joy Global(Nasdaq: JOYG)

$70.32

$72.00

$90.00

Source: Capital IQ, a division of Standard & Poor's.

As you can see, Manitowoc is down from its 52-week high. If you bought near the peak, now is the time to think back to why you bought it in the first place. If your reasons still hold true, you shouldn't sell based on this information alone.

Potential sell signsFirst, let's look at the gross margins trend, which represents the amount of profit a company makes for each $1 in sales, after deducting all costs directly related to that sale. A deteriorating gross margin over time can indicate that competition has forced the company to lower prices, that it can't control costs, or that its whole industry is facing tough times. Here is Manitowoc's gross margin over the past five years:

Manitowoc is having no trouble maintaining its gross margin, which tends to dictate a company's overall profitability. This is solid news; however, Manitowoc investors need to keep an eye on this over the coming quarters. If margins begin to dip, you'll want to know why.

Next, let's explore what other investors think about Manitowoc. We love the contrarian view here at Fool.com, but we don't mind cheating off our neighbors every once in a while. For this, we'll examine two metrics: Motley Fool CAPS ratings and short interest. The former tells us how Fool.com's 170,000-strong community of individual analysts rate the stock. The latter shows what proportion of investors are betting that the stock will fall. I'm including other peer companies once again for context.

Company

CAPS Rating (out of 5)

Short Interest (float)

Manitowoc

5

9.5

Bucyrus International

4

7.6

Middleby

4

12.6

Joy Global

4

5.1

Source: Capital IQ, a division of Standard & Poor's.

The Fool community is rather bullish on Manitowoc. We typically like to see our stocks rated at four or five stars. Anything below that is a less-than-bullish indicator. I highly recommend you visit Manitowoc's stock pitch page to see the verbatim reasons behind the ratings.

Here, short interest is at a high 9.5%. This typically indicates that large institutional investors are betting against the stock.

Now, let's study Manitowoc's debt situation, with a little help from the debt-to-equity ratio. This metric tells us how much debt the company's taken on, relative to its overall capital structure.

Source: Capital IQ, a division of Standard & Poor's.

Manitowoc has been taking on some additional debt over the past five years. Even with increasing total equity over the same time period, debt-to-equity has increased, as seen in the above chart. Based on the trend alone, that's a bad sign. I consider a debt-to-equity ratio below 50% to be healthy, though it varies by industry. Manitowoc is currently above this level, at a sky-high 433.9%.

The last metric I like to look at is the current ratio, which lets investors judge a company's short-term liquidity. If Manitowoc had to convert its current assets to cash in one year, how many times over could the company cover its liabilities? As of the last filing, Manitowoc has a current ratio of 1.2. Manitowoc could cover its liabilities, but it's still below a healthy level of 1.5.

Finally, it's highly beneficial to determine whether Manitowoc belongs in your portfolio -- and to know how many similar businesses already occupy your stable of investments. If you haven't already, be sure to put your tickers into Fool.com's free portfolio tracker, My Watchlist. You can get started right away by clicking here to add Manitowoc.

The final recap

Manitowoc has failed three of the quick tests that would make it a sell. Does it mean you should sell your Manitowoc shares today solely because of this? Not necessarily, but keep your eye on these trends over the coming quarters.

What companies would you like me to cover next in this series? Please leave your comments below.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.